The winter from hell?

03 March 2014

As floods continue to submerge the UK, insurers have been
bailing under the sinking weight of relentless bad news. Here we
round up the most recent headlines including their battle to avoid
sharing the blame for the Prime Minister's falling approval
ratings…

When the political correspondents on Fleet Street begin writing
about them, insurance industry bosses know they're in for a rough
ride. Two months of horrific weather have finally brought the
media's pointy finger onto insurers, whose' bosses were called to
Downing Street after it appeared that a new scheme created to keep
flood insurance affordable for everyone, may leave some out of
pocket. According to the Guardian's political editor Patrick
Wintour, this was particularly important for David Cameron, whose
Tory heartland stood to lose out the most. "Downing Street is to
hold a floods clear-up summit with insurance
industry leaders amid signs that thousands of wealthy victims
of rising waters in the Thames Valley and West Country are likely
to face a £1,000 increase in their
annual insurance premiums next year," he wrote on
18th Feb, adding that a new Comres ITV poll
shows The Prime Minister is "losing the battle to impress
the public about his handling of the floods. Nearly two-thirds of
Britons (63%) think the government is emerging from the current
extreme weather situation with a worse reputation for crisis
management".

The problem for Number 10 and why the Prime Minister wants the
insurance industry to pick up the tab is that for a long time,
Whitehall had an agreement that insurers would provide cheap cover
for flood-prone properties. In exchange, the government promised to
'invest in flood defences'. As of June 2013 however, this deal was
void and the replacement; 'Flood Re' looks set to leave many of the
wealthiest homeowners; those in council tax band H, footing the
bill; hence the aforementioned Mr Wintour's enthusiasm for this
particular angle…

However, as PremExtra went to press, the Prime Minister stepped
in and demanded 'a review' of the policy exempting Band H home from
the Flood Re scheme. According to a Whitehall memo seen by the
Financial Times, Downing Street has now directly ordered a review
of this exclusion and has asked Oliver Letwin, the policy minister,
to work out a way to include these households in the flood
insurance cap.

Medical records for sale?

Later in the month, insurers found themselves in potentially
hotter water after a front-page Daily Telegraph expose reported on
the purchase of millions of medical records from the National
Health Service. The paper pointed the finger at "a major UK
insurance society" which had been able to "obtain up to 23 years of
hospital data, covering 47 million patients, in order to help
companies 'refine' premiums on policies such as critical illness or
life insurance". What the Telegraph described as a 'major UK
insurance society' was an actuarial group, The Staple Inn Actuarial
Society, and so far the story appears not to have rippled beyond
that particular circle (insurers have not made any statements). It
has however, prompted a stern rebuttal from the number crunchers at
the Institute and Faculty of Actuaries. They said: "In a story
published by the Daily Telegraph, research by the IFoA was
represented as 'NHS data sold to insurers'. This is not the case.
The research referenced in this story considered critical illness
in the UK and was presented to members of the Staple Inn Actuarial
Society (SIAS) in December 2013 and was made publically available
on our website.

"The IFoA is a not for profit professional body. The
research paper - Extending the Critical Path - offered actuaries,
working in critical illness pricing, information that would help
them to ask the right questions of their own data. The aim of
providing context in this way is to help improve the accuracy of
pricing. Accurate pricing is considered fairer by consumers and
leads to better reserving by insurance companies.

"Nowhere in this paper does the IFoA recommend a
change in insurance pricing."